Ramping Up - Credit Unions Pushing Forward into Gift Card Space; Relationship with Members Thought Key to Success

ST PETERSBURG, Fla. -- Credit unions have started pushing more quickly into the competitive gift card market but still lag behind the wave of others who have begun to offer the popular holiday items, according to various industry executives and analysts.

The analysts blamed the delay on the tendency of many credit unions not to adopt new products or services early and on their relative smaller size which limits their ability to offer new products quickly, but as the market has become crowded with gift card offerings, many of which offer conflicting terms, CUs stand to benefit.

"If a credit union can make its gift card program known and make the cards available with its terms spelled out clearly, we believe that they will start to see a real advantage in this market," explained Mark Risen, a prepaid director with PSCU Financial Services. Risen explained that the CUSO has spent significant time and resources helping determine how their member CUs can offer gift cards effectively.

Risen echoed what other gift card specialists have said as well, as the gift card market becomes more crowded with offerings that are sometimes not as good for consumers, credit unions can become the trusted source for the product.

One reason credit unions may have not kept pace with gift card demand is that the popularity of the product has, in market terms, simply exploded. According to the National Retail Federation, gift cards will be among the most popular gift items during this year's holiday season, for the first time. This indicates that the card, which used to be seen primarily as an extension of the gift certificate and to carry a sort of stigma, has since shed the image of the "gift-of-last-resort" and instead become a preferred method of gift giving.

The NRF estimated that gift card sales will total $26.3 billion this holiday season, compared to $24.8 billion in 2006. Additionally, the average consumer will spend more on gift cards than they did last year ($122.59 vs. $116.51 in 2006).

"It is no secret why gift cards are the most popular item on consumers' shopping lists," said NRF President and CEO Tracy Mullin. "Many consumers pulled back on spending for themselves this year and are hoping to receive a gift card so they can purchase something they may have had their eye on for months."

According to a recent NRF survey, gift cards will be the one of the most popular gifts this holiday season as 56.6% of consumers plan to buy one compared to other top selling gift items like clothing, toys and books. And with popularity rising among consumers of all ages, 87.7% of shoppers said they will purchase two or more gift cards this holiday season.

"As consumers become more strapped for time, they are constantly looking for ways to make holiday shopping easier and less stressful," said Phil Rist, vice president of strategy for BIGresearch, the firm that conducted the RTF's gift card survey this year. "Gift cards allow for a faster and more convenient way to buy gifts for family and friends."

They also allow consumers to both avoid putting people through the hassle of returning gifts they don't want or don't fit or to aggregate smaller gifts to afford a higher cost item that might have been beyond the reach of any one gift-giver.

The increased attention gift cards have garnered has also meant retailers have started to offer and market them in opposition to cards that credit unions and other financial institutions offer, in part because retailers pay interchange on gift card transactions just as they do for non-gift cards.

"Consumers should be aware that there are big differences between store-issued and bank-issued gift cards," wrote the National Retail Federation as one of its 10 tips for buying gift cards. "While 92% of the leading retailers have no fees associated with gift cards, card issuers such as VISA and MasterCard are more likely to expire and tack on annoying activation, maintenance, inactivity, and transaction fees. In fact some bank-issued gift cards even charge a fee for simply checking the balance."

The tips also included advice to consumers to be sure to use their cards before their state's escheatment policies wind up taking the money and the observation that sales of gift cards will not show up on retail sales statistics until the cards are redeemed.

Jeff Falk, director of product development for The Members Group, the card CUSO associated with the Iowa Credit Union League, explained that gift cards can and should be a key part of a CUs service to its members but that many credit unions have trouble overcoming the start up costs and details the programs require.

For example, since the demand for the cards tends to be cyclical, some credit unions that contemplate offering them can simply miss the opportunity to do so. Other CUs, he said, have simply ceded the retail marketing of gift cards.

"One of the key things that some credit unions need is a sufficient footprint in the community," Falk explained. He also explained that CUs offering gift cards need to recognize they need a degree of patience to get the program up and running, that they are almost all going to start small and build over time.

The Members Group, which has 55 member credit unions that offer the gift cards, supports their efforts with marketing assistance and advice and has seen them work hard to spread the message in their communities that they have the cards. He reported that these efforts have paid off as the credit unions that offer the cards had members who bought them during one holiday season, not only buy them in additional years but also begin to buy them throughout the year for other purposes, for example as gift incentives and bonuses for employees or other reasons.

PSCU Financial Services may have the most proactive approach to helping its member credit unions overcome the gift card startup obstacles. The CUSO, which serves over 500 credit unions with a variety of different payment services, provides a broad range of services to help credit unions market their gift card programs, packaging and a series of professional promotional campaigns to help credit unions promote prepaid cards. Holiday-themed materials are available, as well as other seasonal campaigns designed to promote year-round use.

In addition, the cooperative provides comprehensive marketing support in the form of newsletter articles, press releases, and on-hold voice message scripts along with pre-written marketing content. It also furnishes attention-grabbing so-called j-hook displays and package designs, as well as new gift card envelopes and inserts.

The most recent measure includes offering credit unions free prepaid card readers for their teller counters. PSCU explained that prepaid card readers speed the time it takes to either service existing prepaid cards or sell new ones, such as gift cards, at the teller because they allow the member and teller to accurately see the card balance before or after the transaction instead of having the teller read it and then key it in.

Risen and Falk explained credit unions need to recognize that gift cards can be a key part of serving their members and building bonds with them and then make the jump into what is becoming a mainstream financial offering.

--dmorrison@cutimes.com